Money Market Rates Fall as Banking System Liquidity Rises
The money market rates eased as the new policy corridor took effect after the Central Bank of Nigeria (CBN) cut the policy rate by 350 basis points to 23.00% and moved the deposit floor to 20.00%.
The overnight policy rate fell 1.00 percentage point to 21.00%, and the overnight lending rate fell 0.51 percentage point to 21.76%, AIICO Capital Limited said, adding that the average Treasury bill rate eased 0.43 percentage point to 18.38%.
The financial system’s liquidity conditions improved amid a midweek Treasury bills auction, with more than N4.2 trillion in total subscription and less than N500 billion in allotments.
A slew of investment banking firms reported that the banking system liquidity rose 7.92% to N7.45 trillion from N6.91 trillion, a fourth straight build, and is up 95.30% this year.
Specifically, AIICO Capital Limited expect overnight rates to keep falling towards the 20.00% floor, with N7.45 trillion of surplus cash in the system.
Analysts said the size of the next OMO auction will determine how quickly that surplus is drained, with the Nigerian Treasury bill auction settlement expected to have minimal impact on the liquidity surplus.
Nigerian Interbank Offered Rates closed Wednesday’s session on a strong bullish note, as the overnight rate tumbled by 123 bps to 20.93%, reflecting significant liquidity expansion.
The money market welcomed N2.27 trillion inflow from matured OMO bills and an increase in Standing Deposit Facility (SDF) usage to N7.34 trillion. Liquidity-deficient banks increased their borrowing spree as monetary action reduced borrowing costs at the interbank window.
Short-term money market funding costs eased as well, with both the Overnight rate and Open Repo rate falling by 51 bps and 100 bps, respectively, to settle at 21.76% and 21.00%.
In the Treasury Bills secondary market, yields declined across all maturities. Robust trading activity and strong investor buying interest drove a spread-wide bullish market sentiment, pulling the average T-Bill yield down by 443 bps to close at 18.38%. CBN Targets N500 bln from Treasury Bills Auction Midweek

